Why We Have Too Many Apples

At $120 million, the U.S. government is making record breaking apple purchases.

No, not the phone. The fruit.

Apple Markets

In unusually bountiful years, U.S. orchards have been producing more apples than ever before. With more supply depressing apple prices, farmers are getting as much as 50 percent less revenue from apple juice and apple sauce makers and approximately 13 percent lower prices in supermarkets. Then, further erasing profits, last year’s apples are still in storage. Using airtight rooms with less oxygen called controlled atmosphere storage, processors can preserve most of an apple’s taste and texture for as long as a year. So last year’s crop adds to this year’s supply.

Farmers are responding by planting less and selling their apples to the government. Typical of others like him, one farmer told a reporter that he was diversifying by producing hay and growing peaches and nectarines. Meanwhile, with far more apples rotting then during a typical season, the government has stepped in. Based on Section 32 of the Act of August 24, 1935, they will distribute the apples they purchase to food nutrition programs.

U.S. apple growers:

Our Bottom Line: Inelastic Demand

Changing apple markets reflect basic demand and supply. Perhaps, though, the biggest problem is inelastic demand. When demand for a good or service is inelastic, buyers care little about a dip in price. Yes, they could buy slightly more but not much. It does work in the other direction also. With medication, for example, price increases won’t reduce what we are willing and able to buy. No matter the price direction, inelasticity means we are willing and able to buy approximately the same amount, whether price falls or rises.

For apple growers, inelastic demand from processors and consumers meant a price drop had minimal impact. The one thing it did do was bring their revenue down.

A vertical demand curve reflects its inelasticity. As a result, the shift in supply minimally changed the amount that consumers and processors were willing and able to buy:

As always, economics is everywhere–even in our apple sauce.

My sources and more: Thanks to The Planet Money Indicator podcast for inspiring today’s post. From there, in links that detailed what they mention, we can learn more about storing apples, here, and Section 32, here and here.